Income tax changes

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Title: Food response measures

Sub-title: Rollover relief

Deferred insurance or compensation income

When insurance or compensation payments are received for business assets destroyed by the North Island flooding, the profit and depreciation recovery income can be deferred from the income tax return, provided there is a commitment to rebuild or replace the destroyed assets.

• Replacement land and buildings are not required to be in the same region in New Zealand that they originally were.
• You will need to elect to use the option and notify the Commissioner of your election.
• If the asset is not replaced by the end of the 2027–28 income year, then the rollover relief would cease in that year.

Subject to change prior to royal assent.

Narrator

The first 2 flood response measures involve rollover relief.

The first rollover relief measure is deferred insurance or compensation income.

When insurance or compensation payments are received for business assets that were destroyed by the North Island flooding events, the profit and depreciation recovery income can be deferred from the income tax return, provided there is a commitment to rebuild or replace the destroyed assets. 

It is key to note that these provisions do not include a requirement that replacement land and buildings be in the same region in New Zealand.  This differs from similar provisions introduced for Canterbury earthquakes.

As rollover relief is optional, you will need to elect to use the option and notify the Commissioner of your election. This must be done by the date your income return is required to be filed for each income year you elect to use rollover relief. Applications can be sent as an attachment with a return, via web messages, or as a letter.

If the asset is not replaced by the end of the 2027–28 income year, then the rollover relief would cease in that year. If your business ceases operating or acquires the replacement asset in an income year before the 2027–28 income year, the rollover relief would cease in that earlier income year.

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Title: Flood response measures

Sub-title: Rollover relief

Deductibility of expenses when no income-earning activity

On-going expenses (or losses) can continue to be deducted when a business activity has been disrupted by a flooding event but is still incurring expenses related to the business activity.

You must:

• have had an income-earning activity in the 'affected area' immediately before the flooding event
• resume the income-earning activity before the 2028-29 income year.

If these conditions are met, you can deduct the expenditure in the year that the income earning is resumed.

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Title: Flood response measures

Sub-title: Flood relief

Tax-free accommodation

Extends the time for employees to access tax-free accommodation when needing to relocate to a North Island flood-affected area to work on projects of limited duration.

• Change in timeframe - must have begun work within five years of the flooding event occurring to have this accommodation treated as tax-free
• This change is effective from 8 January 2023.

Remedials

• ‘North Island flooding events’ definition to standardise with other government legislation.

Subject to change prior to royal assent.

Narrator

A further flood response measure is the proposal to extend the time for employees to access tax-free accommodation when needing to relocate to a North Island flood-affected area to work on projects of limited duration. 

Current legislation states that the employee must have begun work within six months of the flooding event occurring to have this accommodation treated as tax-free. The proposed changes are to extend this up to five years.

This change is effective from 8 January 2023. Employment information forms are able to be amended to show tax free accommodation for workers who began more than six months after the flooding events. The resulting refund will go to the employer who would then pass on to the employee. 

There is also a proposed amendment to legislation to standardise the definition for North Island flooding events to align with other government legislation.

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Title: Disposal of trading stock below market value

Image: A person writing on a notebook

Narrator

Now let's look at what's changing when there is a disposal of trading stock below market value.

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Title: Disposal of trading stock below market value

Two of the key changes to the valuation rule for these disposals are:

• the rule will not apply to disposals to non-associated person(s) in the ordinary course of business
• an exclusion to the rule applies to a disposal of trading stock to an approved donee organisation(s).

Minor amendments are also required to ensure the new rules interact appropriately with the general property disposal and purchase price allocation rules. 

Temporary measures that provided relief from the valuation rule will also be repealed.

Changes apply from 1 April 2024.

Subject to change prior to royal assent.

Narrator

When a business disposes of trading stock for below market value, for tax purposes a valuation rule applies to treat it as sold (and purchased by the recipient) at the market value.

Two of the key changes to the valuation rule for these disposals are:

• the rule will not apply to disposals to non-associated person(s) in the ordinary course of business
• an exclusion to the rule applies to a disposal of trading stock to an approved donee organisation(s).

Minor amendments are also required to ensure the new trading stock rules interact appropriately with the general property disposal and purchase price allocation rules.

The temporary measures in response to Covid-19 and adverse weather events that provided relief from the valuation rule will also be repealed.

Changes apply from 1 April 2024.

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Title: IR3 filing

Image: A river running into the ocean

Narrator

Before we end the webinar, I do just want to talk to you about IR3 filing, as the 2024 Individual income tax season is quickly approaching.